Probably you have heard about cryptocurrency and the underlying blockchain technology more than once last couple of months. A lot of articles about cryptocurrency have popped up in all kinds of media and more and more people are getting familiar with the concept. Key players on Wall Street express their thoughts about cryptocurrency publicly, and lots of people are speculating about the future of this new payment method. Expectations of how cryptocurrencies will evolve vary widely, which is reflected in the strongly fluctuating prices.
Rise
The first cryptocurrency appeared in 2009, which is known as Bitcoin. It was established after a white paper of a person or group using the pseudonym Satoshi Nakamoto, about an innovative peer-to-peer electronic cash system. (Vishesh, 2017). Soon after, many other cryptocurrencies followed. In the beginning of September there were over 1000 currencies recorded, from the well-known Bitcoin to the obscured Coinye West, with a total market value of around $150 billion (which fluctuates rapidly). (“China vaardigt..”, 2017)
Definition
Cryptocurrencies are digital or virtual currencies that enable peer-to-peer exchange in a decentralized system, without the intervention of another third party like a financial institution or government. (Rouse, 2015) Cryptocurrencies can be seen as digital cash money. The main technical innovation is not the digital currency itself, but the blockchain technology behind it. For further understanding of the blockchain and cryptocurrency technology, you should definitely watch the video below the article.
2017
In the year 2017 so far, many cryptocurrencies have risen dramatically in value. In the graph in the appendix the returns of eighteen different cryptocurrencies are shown, from the 1st of January until the 16th of August. As you can see, even the lowest return of these eighteen currencies was still plus 251,3%. However, last month the prices of many cryptocurrencies declined dramatically after the news that China banned initial coin offerings (ICO) and bitcoin exchanges, which shows the instability of the cryptocurreny markets. (Rapoza, 2017)
Future
Some leading economic experts are criticizing cryptocurrencies and warn investors that the value of cryptocurrencies will collapse eventually. (Jones, 2017) On the other hand, some experts predicting that this is just the beginning of a new. (Caughill, 2017) Today, Bitcoin reached a new record value of more than $ 5,100 and seems to be back on track. It’s possible that predictions of a cryptocurrency future are overblown, but I tend to say that cryptocurrencies will become the mainstream in doing our payments and prices will continue to rise. What do you think of the future of cryptocurrencies? Let me know in a comment below.
References:
• “China vaardigt verbod uit op lancering nieuwe cryptomunten” (2017, Sept 04). Accessed on 12 Oktober 2017 on: https://www.businessinsider.nl/china-vaardigt-verbod-uit-op-lancering-nieuwe-cryptomunten-bitcoin-daalt/.
• Caughill, P. (2017, Aug 26) “Expert Predicts Bitcoin Will be Worth up to $20,000 in the Next Three Years” Accessed on 12 Oct 2017 on: https://futurism.com/expert-predicts-bitcoin-will-be-worth-up-to-20000-in-the-next-three-years/.
• Jones, B. (2017, Oct 10) “Harvard Professor: “In the Long Run, the Price of Bitcoin Will Collapse”” Accessed on 12 October 2017 on: https://futurism.com/harvard-professor-in-the-long-run-the-price-of-bitcoin-will-collapse/.
• Rapoza, K. (2017, Sept 28). “What China Ban? Cryptocurrency Market Cap Rebounding” Accessed on 12 October 2017 on: https://www.forbes.com/sites/kenrapoza/2017/09/28/china-ico-ban-bitcoin-crypto-currency-market-cap-returns/#3e95622f6c21.
• Rouse, M. (2015, Dec). “Cryptocurrency.” Accessed on 12 Oktober 2017 on: http://whatis.techtarget.com/definition/cryptocurrency.
• Vishesh, V. (2017, Aug 2). “Is blockchain technology the new internet?” Accessed on 12 Oktober 2017 on: https://www.standout.sg/single-post/is-blockchain-technology-the-new-internet.
Appendix:
Video:
Interesting article Rogier! I think cryptocurrency will be here to stay. If I look at the Dutch youth, almost everyone is paying with debit cards. There are very few (young) people that only pay with cash. In this sense, I think cash will be disappearing from everyday life. This makes it more likely that cryptocurrency, micro payments and smart contracts will become part of the way of life in the future.
However, if I look at countries like Germany and Belgium, this image is completely different. These countries still heavily use cash, small shops often don’t have an ATM. This shows that far from everyone is ready to abandon cash and switch to cryptocurrency. Further, the Dutch people (in general) are quite risk averse. Since cryptocurrency is highly volatile, this could complicate the adoption.
Although these above-mentioned problems might prove otherwise, I think cryptocurrency will grow into the future of trading. When big companies start using micro payments and smart contracts, people will follow with the adoption of cryptocurrency.
Hi Rogier,
Your article provides a small glance at the world of crypto currencies. Today (and almost every day next) marks a new high in the Bitcoin era. It’s hard to say if it’s a bubble or something long lasting. The principle of crypto currencies is from my point of view (very) long lasting.
Bitcoin isn’t designed to provide all the features a financial market needs. I tend to think of it like gold: it has to be mined, can be traded and represents a (significant) value. Although Bitcoins are getting easier to acquire, and harder to mine, the process of acquiring them seems relatively difficult.
Crypto currencies like Ethereum and Stratis have, from my perspective, more potential to become something that companies can build on. Bitcoin is just the crypto currency 1.0 while new crypto currencies are 2.0 and maybe even 3.0.
It’s hard to predict the future in regards to crypto currencies, if we could we would’ve been rich by now.
Thank you for your post. In my opinion, governments’ actions will determine for how long the bitcoin boom continues.
A fairly large portion of Bitcoin’s current valuation results from investors’ belief (dream) that, one day, the bitcoin will emerge as a global currency replacing local fiat currencies. From a business perspective this would make intuitive sense; significantly less transactions costs, no more need to hedge revenues in foreign currencies, more control over where money flows, fast and secure transfer of money… However, governments should be expected to be reluctant to allow large-scale anonymous digital payments as this would make it very difficult to collect taxes or counter criminal activity, and, more importantly, would attack their sovereignty.
In fact, we already see that governments around the world start to organize their defence in form of regulations which aim to increase frictions and eventually transaction costs of digital payments. I feel that the bitcoin bubble will burst the day investors realize that governments have the power and means to suppress the power of the bitcoin. And this will happen rather sooner than later.
Hi Rogier. Thank you for your insightful post. I chose to read it since i knew so little about it. Your post explains it very well, and the video was very insightful. Thinking about all the ways the blockchain could disrupt our economies and change our lives is almost a bit terrifying. One of the biggest questions that arose while reading your post and watching the video was: what happens to privacy? Everything about the blockchains seems to be based on transparency. Transparency and privacy are two concepts that do not work well together. Three cryptocurrencies that focuss on privacy are Zcash ,Dash and Monero. They allow you to make transaction anonymously. This however also raises many questions aswell, aren’t these anonymous cryptocurrencies an invitation for crime? Just like you I’m very curious to see what the future will hold.
Hi Rogier, thanks for the informative article. I’ve recently seen another article about cryptocurrencies in Russia, which I’d like to mention. The article stated that Russia is currently developing a CryptoRuble and is planning on banning all other cryptocurrencies once the CryptoRuble is established. I feel like this will be another major blow to cryptocurrencies after China placed a ban on the currency. Definitely will be an interesting topic in the coming years, not only from a technical but also from a political perspective!
If you’re curious about the article check out this one from Russia Today (Kremlin close source): https://www.rt.com/business/406960-russia-issue-blockchain-cryptoruble-putin/